Problem:
Bennington Industrial Machines issued 155,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 6.7 percent.
Required:
If the company has a $55 million market value of equity, what weight should it use for debt when calculating the cost of capital?
Note: Explain all calculation and formulas.